ROI (Return on Investment): what it is, how it is calculated and what ROI is acceptable

The term ROI is the acronym for Return On Investment, known in Spanish as retorno de la inversión. ROI is a financial KPI that tells us the return obtained from a project, investment, marketing campaign, etc.

Put more simply, ROI tells us how much has been generated for every euro invested in, for example, an email marketing campaign. The relationship between the money invested and the money generated by that investment.

ROI stands for return on investment. In Spanish it is called retorno de la inversión or rentabilidad de la inversión, although in practice almost everyone uses the English acronym. A positive ROI means the investment has made a profit. A negative one means money has been lost.

How is ROI calculated or measured?

Calculating ROI is not complicated at all. Just use this simple formula:

ROI = ((Ingresos - Gastos) / Gastos) x 100

Let’s take an example: an Ads campaign costing €1,650 (total cost of the time invested, the cost of the Ads campaign, and payment to the graphic designer who creates the design and the copywriter who writes the copy), which brought in €9,500 in sales.

ROI = ((9.500 - 1.650) / 1.650) x 100 = 475,8 %

So for every euro spent we have earned €4.76 net (and brought in €5.76). As a percentage, that is a 475.8% return on investment.

For every euro invested, €5.76 comes in and €4.76 is earned net. If the sales include the cost of the product, it is better to use the gross margin instead of sales. Otherwise, the ROI comes out inflated.

Revenue

Revenue is understood as the money collected from the sales generated by the campaign.

ROI can be calculated more precisely by area, for example by taking the money obtained in a campaign and counting only the sales generated by email marketing campaigns (only the sales that came through that channel, separated from the total).

Costs

This refers to all the costs that had to be covered to make the campaign viable and carry it out.

Here you need to be as precise as possible so that the ROI you get is as realistic as possible. To do so, take into account, proportionally, items such as staff costs (hours invested), the cost of running the ads on the chosen platform, website hosting, outsourced staff, etc.

The importance of ROI

It is no secret that return on investment is a key metric for businesses to measure whether they are on the right track. Knowing your ROI is also very useful in several ways:

• It helps the marketing department to set real goals and objectives.
• By analyzing the ROI of different actions, it is much easier to improve the ROI generated in subsequent campaigns.
• It is an indicator of quality that shows how much time investments need before they deliver a return.
• It lets you know whether the viability of an investment or project was as expected.
• By tracking it, you can see the status of an investment/campaign in real time.

What ROI is acceptable?

Any ROI above 0 makes a profit, but that is not enough to make it good. What counts as acceptable depends on your product’s margin, how long the return takes to arrive, the risk, and what you would earn if you put that money into something else.

That’s why the best benchmark is your own track record. Compare each campaign with previous ones on the same channel and look at the trend, not at a single figure.

In email marketing, the UK’s DMA calculated in 2019 a return of just over £42 for every £1 invested. Use it as a reference, not as a target. To calculate yours, we explain how in Email marketing profitability.

ROI, ROAS, ROS and other similar metrics

ROAS only takes ad spend into account, while ROI includes all costs. That’s why a campaign can have a high ROAS and a negative ROI if design, hours or returns eat up the margin.

Common mistakes when calculating ROI

The most common one is leaving out costs. Team hours, tools and design are also investment, even if they don’t appear on the ad invoice. Direct costs are easy to see; the rest has to be allocated.

Another mistake is using sales instead of margin. If you sell a product for €100 and it costs you €60, only €40 is real profit.

It is also easy to credit a campaign with sales that would have come anyway. Before drawing conclusions, decide which attribution model you use. And don’t measure too soon: many campaigns keep bringing in sales weeks later.

How Mailrelay helps you

When you connect your campaigns with Google Analytics, you set the utm_campaign and Mailrelay fills in utm_source and utm_medium. That way you can see which sales each send brings in and calculate its ROI with real data.

Plus, with the free account (80,000 emails a month and 20,000 contacts) you don’t pay for the tool. Your investment comes down to your time and your content, which makes email one of the channels with the best return.

Frequently asked questions

What does ROI stand for?

It stands for return on investment, which in Spanish is called retorno de la inversión.

How is ROI calculated?

Subtract the investment from the revenue, divide the result by the investment and multiply by 100. If you invest €1,000 and get €1,500, the ROI is 50%.

What ROI is acceptable?

Anything above 0 makes a profit, but what counts as good depends on the margin, the time frame and what you would earn with another investment. Compare it with your previous campaigns.

What is the difference between ROI and ROAS?

ROAS divides revenue by ad spend. ROI takes all costs into account and measures the real profit.

What is ROS?

It stands for return on sales. It measures how much of each euro of sales is profit.

Related posts

• ROAS
• KPI
• CAC
• Customer lifetime value
• Email marketing profitability
• Marketing budget
• Attribution models
• UTM
• CPA
• Conversion rate

You may also be interested in: Email marketing profitability: how to calculate and improve it.